Currently, cannabis remains illegal under federal law. As a result, financial institutions do not provide banking or transaction services for legal cannabis-related businesses. It leaves the cannabis industry to work on a cash-only basis.

According to the American Bank Association (ABA), any cannabis business transactions are considered illegal activities as they can be classified as money laundering or tax evasion. Moreover, such transactions could leave banks in “significant legal, operational and regulatory risk.”

Now that the industry is growing as more states welcome cannabis friendly policies, Congress wants to give opportunities for legal cannabis businesses to work with banks and credit unions, Forbes reports.

‍

Why Can’t Financial Institutions Work with Cannabis Companies?

The Bank Secrecy Act of 1970 (BSA) is the federal policy that constrains banks from supplying any aid for individuals who work in the cannabis industry, according to the ABA.

Because financial institutions are wary of breaking the federal government’s mandates, they have stayed clear from cannabis businesses. Consequently, legal operators have no choice but to use cash-only transactions when selling products or paying taxes, reports the Los Angeles Times. This behavior puts the owners at a high risk of theft that could lead to violence.

For instance, Charity Gates, a legal cannabis company owner, told the New York Times that she is putting her life at stake whenever she has to pay taxes. She is forced to hide $20,000 in a small duffel bag and alternate between two different cars to lose any individuals who might have followed her.

Tai Cheng, who owns a legal medicinal cannabis shop, has to go through the same dangerous route to pay his taxes, he also told The New York Times. “We dutifully pay our taxes, and the government happily accepts it. It’s ridiculous to have to jump through all these hoops.”

Cannabis legalization in individual states alone cannot solve this issue. Cornell Law School explained that the U.S Constitution considers federal laws as the “supreme law of the land.” That said, state laws must submit to any federal policies known as pre-emption.

However, congressional action can help eliminate barriers stopping the cannabis industry from receiving financial services. For instance, in 2017, the U.S. House of Representatives decided to take its first step to create a bill that exempts banks from any federal penalizations when interacting with cannabis businesses.

‍

The Origin of the SAFE Banking Act

Sen. Judd Merkley, D-OR, first introduced The Secure and Fair Enforcement (SAFE) Banking Act to the U.S. Senate in March 2017, according to a summary of the bill. The act aims to remove federal penalties for financial institutions like bankers and lenders who work with legal cannabis providers.

The SAFE Banking Act was re-introduced in 2019 by Rep. Ed Perlmutter, D-CO, by a vote of 321-103. Members of the House supported it three times from 2017 to 2019. However, the summary of the bill showed that it stalled in the Senate Banking, Housing, and Urban Affairs Committees.  

In 2019, Sen. Merkley, who originally introduced the bill to the Senate in 2017, believes that passing the bill will strengthen public safety. Specifically, he explained, “operating in cash is an invitation to robbery, money laundering, and organized crime,” in a press release from his office.

Moreover, Rob Nicholas, the CEO of the ABA, shared the same sentiment as Sen. Merkley. Nicholas mentioned that “the bill will help banks meet the needs of their communities while reducing cash-motivated crimes, increasing the efficiency of tax collections, and improving the cannabis industry’s financial accountability,” according to an ABA press release.

Despite this, and House approval for the bill in 2019, it died in the Senate, reported MarketWatch.

But, it was reintroduced in March 2021.

‍

The 2021 SAFE Banking Act

Members of the House passed the SAFE Banking act on Monday, April 19th, 2021. It passed by a vote of 321 to 101. Once more, it was re-introduced by Rep. Ed Perlmutter.

Now, the act will head back to the Senate floor for a vote. If legislators pass it, it heads to President Biden’s desk. If President Biden approves it, it becomes law. But if he vetoes it, it will head back to the Senate. Senators can then shoot it down, or override the veto — making the bill a law.

Steve Hawkins, the executive director of the Marijuana Policy Project (MPP) stated, “this vote marks a meaningful first step in establishing a more equitable cannabis industry and improves the likelihood that other cannabis legislation will advance at the federal level,” he explained in an MPP press release. “Restricting cannabis businesses from accessing financial services creates an unnecessary burden for the industry and limits economic growth.”

Experts believe that 2021 might finally be the year when the Senate might approve the SAFE Banking Act, considering democrats hold a majority of seats in the Senate.

Furthermore, bipartisan support for federal cannabis legalization is growing. For instance, 63% of Republicans and 78% of Democrats now support it, according to Pew Research. Additionally, 91% of Americans also favor legalization.

‍

How will SAFE Banking Act Benefit Americans?

The act can benefit not only business owners, but customers, too.

It facilitates the process of buying and selling cannabis products. This can lead to a higher number of purchases among customers. For example, Westworld interviewed a cannabis smoker who stated that paying with cash is annoying since credit cards are not accepted. Even though dispensaries contain ATMs, the buyer does not want to pay additional money for the ATM bank fee and waste time.

Additionally, shops will contain less cash with access to credit and debit cards. This will reduce chances of crime, according to the Journal of Urban Economics. Additionally, credit cards offer better ways to track money since cash can be easily lost or miscalculated.

Altering the banking law can provide the operators opportunities to receive loans. As a result, it can increase the number of people starting a dispensary or a legal cannabis business. In turn, this could increase the amount of tax revenue states could earn from cannabis sales.

Ultimately, however, it will lower the risks legal cannabis operators — and their consumers — have to face.